Alibaba's latest earnings report reveals a pivotal strategic shift: after heavy investments in its instant retail business "Taobao Deals," the company is transitioning from pursuing scale to controlling losses, which may provide crucial support for future profit recovery.

According to the Q3 earnings disclosed on November 25, Alibaba's revenue grew 4.8% year-over-year to RMB 247.8 billion, but Non-GAAP net profit plummeted 71.7% YoY to RMB 10.35 billion. The profit decline was primarily attributed to its China commerce segment, where adjusted EBITA dropped 76.3% YoY, largely due to strategic investments in Taobao Deals.

Management confirmed during the earnings call that Taobao Deals investments peaked this quarter. Analysts at CITIC Securities believe the investment cycle may have topped out, with future strategy shifting toward profitability. Huatai Research estimates these investments impacted EBITA by approximately RMB 36.7 billion. As operations pivot, per-order losses have narrowed significantly, with markets closely watching whether this transition can mark an inflection point for near-term profitability.

While e-commerce profits remain pressured, Alibaba Cloud Intelligence Group delivered strong performance, with revenue up 34.5% YoY, emerging as a bright spot in the report and demonstrating AI-driven growth momentum. However, for investors, Taobao Deals' loss reduction trajectory and its synergy with core e-commerce remain key variables in assessing Alibaba's future value.

**Investment Peaks, Loss Reduction Takes Priority** Alibaba's China commerce segment posted 15.5% revenue growth to RMB 132.6 billion, but adjusted EBITA plunged 76.3% YoY to RMB 10.5 billion, mainly dragged by Taobao Deals investments. CITIC analysis shows that excluding Taobao Deals, core e-commerce EBITA would have grown at a mid-single-digit rate, indicating stable profitability in traditional e-commerce.

Management confirmed Q2 FY26 marked the peak investment phase for Taobao Deals, with spending expected to decline significantly in Q3 FY26 as efficiency improves and scale stabilizes. This aligns with market expectations of a strategic shift from order volume growth in Q3 to loss reduction in Q4.

**Efficiency Gains Show Early Promise** Operational improvements are already visible. Huatai Research notes Taobao Deals' per-order losses halved since October compared to July-August, while order share remained stable and GMV share grew due to higher average order values. CITIC reports show unit economics (UE) improved significantly from September, suggesting early investments are yielding operational returns.

Notably, Taobao Deals is demonstrating synergy with Alibaba's main platforms, boosting user engagement and driving sales in related categories. Customer management revenue (CMR) grew 10.1% YoY, marking three consecutive quarters of double-digit growth, partly due to cross-selling from Taobao Deals.

**Cloud Business Shines as AI Drives Growth** While e-commerce undergoes transition pains, Alibaba Cloud emerged as a standout performer, with revenue jumping 34.5% YoY to RMB 39.82 billion, exceeding expectations. AI-related revenue maintained triple-digit YoY growth for nine straight quarters, accounting for over 20% of external commercial revenue.

Management highlighted "strong demand" for AI services, with server deployment lagging order growth, signaling robust potential. The company continues heavy investment in AI computing and cloud infrastructure, with quarterly capex reaching RMB 31.5 billion.

Strategically, Alibaba aims to become a world-leading full-stack AI provider for enterprises while developing consumer-facing AI applications through advanced models and ecosystem integration. This "cloud + AI + applications" closed-loop strategy is becoming another growth engine.

**Brokerages Raise Near-Term Forecasts, Eye Sustainability** Based on earnings and guidance, brokerages revised Alibaba's projections. Huatai lifted FY26 Non-GAAP net profit forecast by 10.1% to RMB 105.8 billion, citing better-than-expected Taobao Deals progress, though trimmed FY27-28 estimates due to e-commerce headwinds. CITIC projects FY26 Non-GAAP net profit at RMB 114.2 billion, with a 40% rebound to nearly RMB 160 billion in FY27.

While near-term outlook improves, analysts caution about risks including intensifying e-commerce competition and potential delays in Taobao Deals' loss reduction. The business's ability to efficiently narrow losses along the planned trajectory will be critical for Alibaba's short-term profit recovery and market confidence.